US Share Market & high-frequency trading

Posted Apr 1, 2014 by Martin Armstrong

The US Share Market is like that Pink Energizer Bunny – it just keeps going. The talking heads keep talking to themselves and remain clueless since this is not economically driven from the standpoint of a booming economy. Rather. the economy remains the strongest in the world and we are simply the prettiest of the ugly twins.

Of course there is the promotion of Michael Lewis’s new book where he claims the market is rigged by the high-frequency trading. This sounds great. but in truth there is no substance to this regarding the trend. Yes, a computer can out-trade any individual with ins and outs rapidly. However, during an increase in volatility, these programs shut down. They withdraw from the markets and therein you get the flash crashes because they do provide the illusion of deeper markets.

The high-frequency trading deepens the market but it does not alter the trend. The computers trade within the trend and the market still peaks and bottoms on schedule with our model. Even in computers, if you try to create a random number generator, it will fall back to a pattern and cycle. Attempts to seed it from the time clock produce the same end result beginning from the same tick on a clock. Therefore, high-frequency trading displays also cycles.

Those claiming markets are rigged do not really understand how they function if they claim the trend can be altered. You can rig something within the trend, but that is it. You cannot make the US share market rise or fall based upon your desire for the long-term. If the entire world is trading against you, you are done. Here is the S&P in Euros. Now lets look at it in C$, BP and Swiss.

If high-frequency trading actually manipulated the market, then it would be rising only in dollars. The fact that the US share market is rising in most currencies even when the currencies are rising against the dollar, demonstrates this is a real bull market on a global scale.

We will see a temp high form near-term. However, the S&P is headed to test the 2000-2045 level. All the high-frequency trading in the world will NOT prevent the crash that will be on the horizon. Nobody can manipulate the trend. The best they can do is fuel the trend but never trade against it – the old saying remains true – the Trend is your Friend.